ASIC holds firm on PI requirements
The Australian Securities and Investments Commission (ASIC) has reinforced just how little scope it will allow financial planning firms to opt out of the need to hold appropriate professional indemnity insurance, even when clients have mostly large allocations to cash.
ASIC’s approach was made clear in its most recent report on relief decisions in which it said it had declined an application from an Australian Financial Services licensee for relief from the requirement to have adequate compensation arrangements in the form of professional indemnity insurance under section 912B of the Corporations Act.
ASIC said the licensee and sought the relief on the basis that it was “not commercially viable for it to hold professional indemnity insurance because it did not have many clients and the majority of those clients were invested in cash”.
The regulator said that after considering the information provided by the licensee and the relevant regulations, “we did not consider there was a sufficient policy basis to grant relief in these circumstances”.
“In particular, we noted that the policy underlying the requirement for all AFS licensees to have adequate professional indemnity insurance is aimed at reducing the risk of consumer losses where they would be unable to be compensated due to a licensee’s insufficient financial resources,” it said.
“It also protects a licensee against the risk that they are unable to satisfy claims by consumers—that is, the policy is aimed at protecting both consumers and licensees alike and there was insufficient evidence provided to show that it was impossible for the applicant to obtain a professional indemnity insurance policy compliant with RG 126,” the ASIC decision said.
AUTHOR
Mike Taylor
Recommended for you
ASIC has cancelled a Sydney AFSL for failing to pay a $64,000 AFCA determination related to inappropriate advice, which then had to be paid by the CSLR.
A former Brisbane financial adviser has been charged with 26 counts of dishonest conduct regarding a failure to disclose he would receive substantial commission payments for investments.
Inefficient data processes and systems mean advisers are spending over half of their time on product implementation and administration at the expense of clients, according to research.
With the regulator announcing its enforcement focus for 2025 last week, law firm Hall & Wilcox examines the areas which have dropped down the list in priority for the regulator.
